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Would you take a lump sum or annually





standready
To generate revenue, many states have a lottery. If would you play knowing proceeds go to the state to fund various projects?
If you did win, would you take the money in a limp sum which is only around half the prize amount or would take the full amount over 25 years? Example: 1 million prize - approximately 500,000 lump sum or 40,000 for the next 25 years.
Ankhanu
Long term, definitely.
zacky
I guess I go for long term as well.
deanhills
Long term makes sense to me too. I'd be able to live on that comfortably with some change as well.
playfungames
Like most of us here, I too would prefer a long term sum.

I know that a lump sum is good as well because you could use it for some investments or something. But I'd like something more regular and long term. But I do hope that inflation does not make the long term sum worthless.
watersoul
I would take the 500,000 lump sum and through cash buying a few derelict properties (then renovating them myself with a couple of mates) I'd turn that into a million within 2 or 3 years for sure.
standready
Thanks for the input so far. Keep it coming. I also would go long term security of knowing I had income. Although watersoul has a good plan given his experience. There have been many reports of people winning and taking lump sum only to end up filing bankruptcy within a few short years due to poor management of funds.
Nobody has won here for a while so some lucky person could have 11,000,000 = around 5,500,000 lump or 440,000 annually. Would that amount change your decision?
Blaster
This is a topic that I often find myself in everytime the power ball is up there. If its a big sum of money say 500,000,000 then if you were to take it as a lump sum and after taxes you're looking at say 300,000,000 so lets be honest if you took that and invested it you could still live greatly. But if the sum is smaller like you said and you're getting 40,000 a year then I would probably just take it annually.
watersoul
standready wrote:
Nobody has won here for a while so some lucky person could have 11,000,000 = around 5,500,000 lump or 440,000 annually. Would that amount change your decision?
Yep, definitely, 440,000 is a massive amount of money to receive every year, I think I'd probably just retire early and devote my life to a mixture of hedonism and altruistic/humanitarian pursuits.

I got 3 numbers on the UK weekly national lottery, winning 25 yesterday, 3 more and It would have been 7,500,000 - I can dream haha.

Is it true that the US government tax the winnings from your lotteries, wow??!
In the UK you get to keep it all and only pay tax on interest/earnings on the money over following financial years.
standready
watersoul wrote:
I got 3 numbers on the UK weekly national lottery, winning 25 yesterday, 3 more and It would have been 7,500,000 - I can dream haha.

Congratulations. My three numbers this last week only gave me $3.

watersoul wrote:
Is it true that the US government tax the winnings from your lotteries, wow?

The federal government does not run any lottery here so yes you have to pay taxes to them on any winnings. Federal can take up to 39.1% in taxes depending on amount won. Hence another reason why I would take annually. 500,000 can quickly become only 304.500 or less and many forget that when they take the lump.
Most states do not take taxes on winnings within in your own state. Win another state's lottery and you do have to pay taxes sometimes even to both states.
watersoul
standready wrote:
Federal can take up to 39.1% in taxes depending on amount won. Hence another reason why I would take annually. 500,000 can quickly become only 304.500 or less and many forget that when they take the lump.
Yeah that tax thing changes it a bit and would definitely influence my decision!
UK government taxes us big time but with gambling it is relaxed for the individual, with no taxes on stake or winnings, just a 15% tax on profits of the gambling service provider, betting shops, bookmakers, casinos and such like.
...doesn't improve the odds of winning though Razz
Blaster
If the US Government can make easy money then they do no doubt. In some cases I don't mind if I had that much money its what ever at that point I guess.
watersoul
Blaster wrote:
In some cases I don't mind if I had that much money its what ever at that point I guess.
Totally agree, if I had enough money to either never work again, or enough to easily springboard my business so I'm paying more people to carry out the 'work' instead of myself, then those taxes would become irrelevant in my mind.

On a related note, my son turned 16 a few weeks ago and exercised his legal right to buy his first lottery ticket yesterday for the weekly draw tonight. He had his driver licence photo ID all ready to prove his age, but the sales clerk didn't even ask for it - he was almost disappointed about that!
We chuckled about how much we'll be giving each other if either of us win the jackpot, I teased that I'd sort him out with a new pencil case for school, while he promised me a new set of trowels so I can carry on busting my balls plastering/rendering for a living!

...we both agreed on a Summer of travelling and paying off his mam's house mortgage loan though...ah so many dreams for a 2 stake! Wink
Blaster
Dreaming is the best part about the lottery. I've always said If I won I would move to Georgia live on a nice size farm and own a bunch of toys.
watersoul
Blaster wrote:
Dreaming is the best part about the lottery. I've always said If I won I would move to Georgia live on a nice size farm and own a bunch of toys.
Nice plan.
I would stay on the SW coast of England here, but there is some lovely agricultural farmland at the shore which I would be more than happy to make my own little countryside estate.
Farmland with registered residential property (farmhouse) costs millions here but land without residential planning permission is really cheap per hectare.
Land is my ongoing and current plan regardless of lottery wins, and as UK law does not require planning permission for buildings on wheels (caravan/truck flatbed trailer etc) I shall be exploiting that loophole with some cheeky and perfectly legal construction methods.
If I win the lottery it just means I can purchase much more land than I otherwise could Smile
Blaster
Really so you couldn't even have a trailer or something like that. They are popular homes here in the states.
watersoul
Blaster wrote:
Really so you couldn't even have a trailer or something like that. They are popular homes here in the states.
Yep a ready made trailer is acceptable within planning laws because it is on wheels. I would just prefer to build a more conventional timber framed home myself on a couple of flatbed trailers.
The local authority will hate me but there will be nothing they can do about it. Now look forward to next weeks lottery, only got 2 numbers last night so it looks like I've gotta work tomorrow!
standready
Well on to next drawing of the lottery since nobody won. 12 million now. Getting close to half a million for 25 years. I think I would split it with half going into a non-profit to help others especially after a disaster.
Blaster
I'm sure if I hit big a good amount would go to some type of charity. Most likely something to do with children's hospital.
watersoul
Blaster wrote:
I'm sure if I hit big a good amount would go to some type of charity. Most likely something to do with children's hospital.
I've always fancied the 'secret millionaire' idea, buying specific things for hard luck stories/charities and cutting out the middlemen/administration.
I would certainly want to make a difference to the lives of others if I am lucky enough to win big time one day.
Nyasro
I think annual is better than lump sum Razz
Blaster
watersoul wrote:
Blaster wrote:
I'm sure if I hit big a good amount would go to some type of charity. Most likely something to do with children's hospital.
I've always fancied the 'secret millionaire' idea, buying specific things for hard luck stories/charities and cutting out the middlemen/administration.
I would certainly want to make a difference to the lives of others if I am lucky enough to win big time one day.

It is fun to think about. I agree with cutting out the middle man... They usually get a percentage of the money anyway which isn't cool. I'd rather go down to the children's hospital and sit down with the kids and parents and help out the ones I can.
Nick2008
I would probably take the lump sum to be certain the funds are in my control. I wouldn't trust long-term payments over 20 or 25 years. Who knows where the world will be by then? What if there's global turmoil or the entity paying you hits the fan and you stop receiving payments?

I would probably take the lump sum and deposit part of it in a Swiss bank and invest the other part. This way I am taking full responsibility and know that my financial future is in my hands and nobody else's.
sudipbanerjee
The money will come through a lottery which is totally luck based. SO I will try to bet on my luck again. I will take lump sum amount. Half of these amount will be deposited in some secure savings scheme like banking. I will invest another half in some good business projects.
standready
watersoul wrote:
cutting out the middlemen/administration.

I agree. I did not make myself clear enough. I would start (and run) this non-profit. Non-profit does not pay taxes so more money available use. A bit of a headache but huge tax advantage verses trying to 'write-off' "charity" on taxes. Example: You can't write-off money given to an individual (disaster aide or tuition).
watersoul
standready wrote:
watersoul wrote:
cutting out the middlemen/administration.

I agree. I did not make myself clear enough. I would start (and run) this non-profit. Non-profit does not pay taxes so more money available use. A bit of a headache but huge tax advantage verses trying to 'write-off' "charity" on taxes. Example: You can't write-off money given to an individual (disaster aide or tuition).
Yep the creation of a non-profit would definitely be the plan for me if I won those shockingly huge amounts in US lotteries, purely to stop the state taxing the giving.
The usual jackpot with the UK lottery is 1 or 2 million 's though, which is of course a tidy sum, but I'd prefer to be concentrating on a property/construction/renovation/work plan to self-sustain that sum of money while providing fair paid work to blokes in my local area.
As an individual in the UK I can waste money from savings in my personal account without question because I am taxed on the interest. That is the only potential income from the account.

My business account is of course much much more complicated, but as long as I separate the two, and the only money going in the personal account was the jackpot winnings (which have already been considered for tax purposes) and/or drawings from the business account then I can waste that as I like on other people. It has already been treated as income by the state, so I can spend it as I like.
Giving cash to people may cause them a liability for tax, but if they receive the altruistic gift of a wheelchair and bed-lift/hoist from me then it is not taxable. I just spent some of my personal account on a gift. If a man needed some tools to be able to again carry out his trade then I can buy those tools and the gift is not taxable.
There are of course different rules with property such as homes and land, but I can thankfully avoid most HMRC demands quite legally and easily in my personal taxation responsibilities.

I like your plan Standready, we're from similar hands-on ideas...just playing our own different systems as they require playing.
...hope we both win one day Wink
coolclay
I think I would have to sit down and spend hours running the numbers to make that decision. Particularly taking inflation, interest on investments, and lots other factors into account. I would imagine that a lump sum and some good investments could theoretically yield more than a protracted payout, however that would depend on inflation and other concerns.

For example if the $ crashes (only a matter of time) than $1,000 might not by a hamburger, but if I had taken a lump some and invested it in tangibles and commodities then I would be just fine.
Blaster
standready wrote:
watersoul wrote:
cutting out the middlemen/administration.

I agree. I did not make myself clear enough. I would start (and run) this non-profit. Non-profit does not pay taxes so more money available use. A bit of a headache but huge tax advantage verses trying to 'write-off' "charity" on taxes. Example: You can't write-off money given to an individual (disaster aide or tuition).

Ahh i see what you mean and that does make a lot more sense than what I was thinking.
Insanity
I think I would be happy to just get anything from the lottery. But I think whichever pays out the most in the long term would be the best. I have no real concerns with using a lot of money right away. In fact, it might be better to just have it done in installments so I don't go crazy and blow everything up at once. It'll keep me disciplined and sane, knowing that I have enough in the future. However, an argument could be said about taking the lump sum and investing it so that you can gain so much more in the future. However, that involves too much risk for me and work instead of lying back and enjoying the money.
standready
Insanity wrote:
In fact, it might be better to just have it done in installments so I don't go crazy and blow everything up at once.

Quite a few have done that and ended up filing bankruptcy.

Insanity wrote:
However, an argument could be said about taking the lump sum and investing it so that you can gain so much more in the future. However, that involves too much risk for me and work instead of lying back and enjoying the money.

Yes but still allot of portion of the installment to investing. That way if the investment goes bad, you have backup.
chartcentral
There are many things to consider, like if I need a big amount of money for a certain purpose at the time I claim my winnings. But otherwise, a long-term payment scheme would make sense.
tcarnevale
My answer to first question:

I'll restrict myself to US, since that's where I'm most familiar.
Since most states claim that lottery revenues are put to well-defined and worthwhile activities, e.g., education, I'd evaluate whether I believe that's the case.

On the other hand, most lotteries (regardless of intent) turn out to be a tax on the poor.

Hence, I choose not to play.

For the second question, there is a classical economics answer: determine the rate of return on the annuity (there's a standard formula to do this). If you can earn a better return elsewhere, take the lump sum and invest it.

I think there's a fair amount of research that shows that most lottery winners are broke after 5 - 10 years.
Blaster
Although I do agree with you a lot of people play the lottery and rarely ever win... Its just like any other type of Gambling. It can be fun to play though and exciting so I do chose to play it from time to time. But like you said most people with a lot of money like that actually go broke fairly quick considering they just blow it and don't think about it ever running out.
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